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ResearchThe Weekly (2/10)

The Weekly (2/10)

Feb 10, 2023

Have you seen Ford v Ferrari?

It’s a film that details Ford Motor Company’s attempt in the 1960’s to dethrone Enzo Ferrari at Le Mans. Think: the Superbowl of Car Racing. Carrol Shelby, on Team Ford, toils away to build the new Ford GT. At a crucial juncture, and after a few failures, he realizes that for the car to go faster, they need to delete parts. “We're lighter, we're faster, and if that don't work, we're nastier.” 

Zuckerberg & Team Facebook is on a similarly high profile stage. They have had several stumbles. And it feels like they just went through a similar juncture. 

Zooming out for a second. Remember 2018? Facebook had been on an absolute tear for 5+ years, then hit a sales growth wall. Here’s an example headline from the NY Times: “Facebook’s Stock Plunge Shatters Faith in Tech Companies’ Invincibility.” Peak to trough, the stock declined nearly 40%. Brutal. But it recovered. 

Now jump to 2022. With macro shocks plus core business concerns, FB’s stock declined peak to trough ~70%. Another brutal slide. However this time, famed shareholder Brad Gerstner, from Altimeter Capital, gave a bit of a 1960’s Fordian rallying cry

“The conventional wisdom is that the core business hit a wall. As a result, the team hastily pivoted the company toward the metaverse…The silver lining is that unlike many companies, this popular narrative obscures the truth. Meta’s core business is one of the largest and most profitable in the world with over $45 B in operating profits last year alone. But Meta needs to get its mojo back. In short, Meta needs to get fit and focused.” (Quote condensed)

Now it’s 2023. Zuckerberg responded in less than 100 days time, in almost cinematic fashion, by shedding a bunch of parts, and focusing the business on winning the Le Mans of Tech: Artificial Intelligence. Facebook’s stock has more than 2x’d as of this writing (compared to just 14% for the Nasdaq). 

But the big question remains: can Zuck win this race? To that we have two conclusions (disclosure: we continue to own META stock for Titan clients).

(1) The more important question isn’t whether META can win gold, but can it make the podium? There will be multiple winners here. 

(2) Being a long-term investor is, in many ways, being a resilient investor. We can’t predict what hurdles META is going to face next, but do we have confidence that Team Facebook can pick themselves up, make hard decisions, and get fit when needed? 

What we’re seeing is a company that knows how to systematically get its mojo back when it gets punched down. That’s not something you bet against.

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